Afghanistan overtaxes US contractors, IG finds

May. 14, 2013 - 02:43PM
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Afghanistan has slapped US-funded contractors working on reconstruction efforts with nearly $1 billion in taxes since 2008, often in spite of clear tax exemption agreements, a government watchdog has found.

Complicating matters, US contracting officers often don’t understand Afghanistan’s tax laws, resulting in improper payouts to contractors for taxes, the Special Inspector General for Afghanistan Reconstruction revealed in report Tuesday.

“It’s disturbing that the Afghan government is targeting American contractors with unjust taxes and intimidation,” IG John Sopko said in a statement. “It’s even more disturbing that US agencies are letting it happen — all at the expense of American taxpayers, who have already shouldered a heavy burden on Afghan reconstruction. This needs to end.”

Overall, the report found the Afghan Ministry of Finance levied about $921 million in taxes and penalties on 43 contractors. About $93 million came from a corporate income tax category that U.S. and Afghan officials agreed ought to be exempt.

Meanwhile, contractors hit with the taxes appear to be passing along the cost to the government. The report found contractors adjusting their bids to account for the increased tax costs.

The report also concluded there was a lack of a consensus among U.S. agencies funding reconstruction efforts — the Defense Department, Army Corps of Engineers, State Department and U.S. Agency for International Development — on taxation.

But in a written response accompanying the report, the State Department disagreed with special IG’s assessment, saying agencies have common understandings of tax agreements in place.

Sopko’s report said the Army and Army Corps of Engineers agreed with his recommendations, including training contracting officials to recognize taxes in invoices and contracts, and are working to address them.

State Department officials questioned the IG’s authority to examine the issue, saying the State Department IG and the Government Accountability Office are “the responsible inspection entities.”